All about Education loan

In this age and era when everything has become so expensive, how can education remain a laggard? The cost of education, especially higher education is touching the sky. An MBA from good institute does not cost less than Rs 15-20 lakh. Even the cost in the second rung colleges is around 5-6 lakh. Apart from the tuition fee, there are living expenses that add up to the cost. So how do you fund this cost? Have you already made provision for this much in your life? Most of us would not have paid attention to this necessary expense. So what are the options for you? For that you need not worry.

The good news is that financial institutions like banks provide loan to fund higher education and can help you or your ward scale up career. Most of the public sector banks provide education loans. Let’s see the intricacies involved in the road to getting an education loan.

Eligibility

You can be granted an education loan if you are a citizen of India and have already secured a confirmed seat in an institute through an entrance test or through cut off marks. You might get a loan without any confirmation with some financial institutions. The age band for such loans is usually 18-35. The latter mainly cover tuitions fee but some lenders also bring the cost of living expenses, books and tutorials under its scope. Punjab National bank(PNB), for instance, also bring expenses like books and equipment purchases, purchase of computers and study tour expenses within its educational loan scheme-PNB Saraswati. The SBI education loan schemes also covers the cost of two-wheelers up to Rs 50,000.

Remember that you cannot be provided loan for just any educational institute in which you want to take admission. Usually, financial institutions have list of pre-approved colleges and courses. The colleges that promise good job placement fall under this list. Nowadays, the list of courses has also been enlarged. Loans are even being granted for vocational courses apart from normal medicine, engineering or management courses after senior secondary examination. The saraswati scheme of PNB also finance part time job oriented courses recognized by the approved authorities.

Loan amount

Location of study plays a key role here. The amount is dependent on whether you want to study in your own country or secure admission abroad. For studying in India, the loan amount usually disbursed is up to Rs 15 lakh and for courses in abroad, this figures is normally up to Rs 20 lakh. Punjab National Bank for instance provides Rs 10 lakh and Rs 20 lakh as education loan for studying in India and abroad respectively. On the other hand, State bank of India offers Rs 30 lakh loan for studying abroad. In some cases be prepared to shell out some margin too. However, some companies provide 100 per cent loan and do not demand any margin.

But you might be asked to keep some collateral. This could be in a form of a residential property, gold, shares, mutual funds, fixed deposits, insurance policies, National Savings Certificate and Kisan Vikas Patra.

If not collateral, some banks or financial institutions might ask you to bring co-applicants for the loan in case of higher amount of loan. The same should be Indian passport holders and should have other valid identity proofs besides clean repayment history record. Bank statements, salary certificates, income-tax returns are also screened in case of co-applicants. For reputed institutes, however, bank do not insist on the requirement of co-applicant

Interest rate

The interest rate on educational loan varies across lenders. This rate is usually 2-3 per cent above the bank’s base rate. Punjab National Bank provides loan 3 per cent above its base rate (10.25%) for loan up to Rs 4 lakh. With fixed rate loan you will know the exact amount you need to pay as an equated monthly installment. Then there is upfront fee in some cases. This amount is usually refundable. For female borrowers there is a concession of 0.50% in the interest rate by some banks.

Documentation

If you are a student first of all you have to submit the completed education loan application form. Then you need to attach the mark sheets of last qualifying examination and the proof of the admission in the institute. Also, a list of expenses for the specified course is required to be submitted by you.

Moratorium

Moratorium is the period during which you don’t need to repay the loan. This is usually the duration of your course and extends up to a year after the course completion. In case you secure a job immediately after the course compeletion, the moratorium ends within six months of being employed. Once the moratorium period is over, you get seven years to ten years to repay the loan. In case you decide to prepay the loan (during the moratorium), you get an interest waiver of up to 1 per cent by financial institutions. Moreover, there are no prepayment charges.

Tax benefits

An educational loan not only can help you fund your higher education but also help save tax. The interest paid on education loan can be claimed as deduction under section 80 E of the Income tax Act. But keep in mind that only interest portion of the loan is qualified for the tax benefit and there is no capping on the interest portion. The entire portion can be claimed for deduction. However, the deduction is available only when the repayment starts and not before that. It is available up to ten years for amount ranging up to Rs 7.5 lakhs and fifteen years in case of amount above it with some institutes or else till the payment of interest in full, whichever is earlier.

You can avail tax benefit only if loan has been taken by you for yourself, spouse or for your children but in the books the loan should be in your name. Also, loan from family and friends do not qualify for tax benefit. Unlike earlier, now the tax benefit is also being extended for vocational courses offered after senior secondary apart from graduate and post graduate courses in engineering, medicine and management.